APPENINN VAGYONKEZELŐ HOLDING NYRT.

Transcription

1 APPENINN VAGYONKEZELŐ HOLDING NYRT. CONSOLIDATED Business Report and Management Report for the year ending on 31 December 2016 based on the International Financial Reporting Standards (IFRS) Published: 28 th April 2017 This report is a language translation of the Hungarian language report reviewed by the independent auditor. For the case of language translation differences the Hungarian language version prevails.

2 to Appeninn Holding Nyrt. s consolidated report concerning 2016 the business report prescribed in Act C of 2000 on accounting and the management report prepared on the basis of Appendix 1 to the Decree of the Ministry of Finance, set in a consolidated structure Table of contents 1. History of the Company Description of the sectoral environment Goals and strategy Development Main resources, risk factors and their changes, uncertainties Risk factors and mitigation Key events after the balance sheet date Quantity- and quality-related indicators of performance measurement Results and outlooks in the period of the annual report Information on the capital and shares associated with the public listing of securities Description of changes in equity capital, Details of committed reserves, Issued shares and shareholding rights Capital increase in List and description of owners and Board of Directors Employee benefit plan, share option program Articles of Association Corporate management system Places of public disclosure Framework for the continuation of the enterprise Research and experimental development Environmental protection Other declarations Senior officers, strategic employees Changes in the headcount of full-time employees Declaration of liability... 16

3 1. History of the Company Appeninn Vagyonkezelő Holding Nyrt. was founded in December 2009, and started its income-generating business operations in 2010; today, the Company is one of the most dynamically growing property investment operators in Hungary. Appeninn Nyrt. has a holding company function without the Group, and renders the following services within the Group: provision of real-estate property maintenance and operating services that are necessary for the lease-out activities of the subsidiaries active portfolio management centralized management and administration, as well as legal representation centralized arrangement of purchasing transactions, finding the most favourable offers organization and implementation of property renovation, conversion works, professional supervision receivables management provision and operation of the central dispatcher/fault reporting line organization of the security guarding and reception services of the properties advertising properties/offices to let, recruitment of tenants, maintaining contacts with the tenants publication of advertisements in the electronic and printed media, presentation of the subsidiaries and their properties at the appeninn.hu website The Company is one of Hungary s most dynamically growing property investment companies. During its operations, the Company focuses on such market segments where favourably priced assets with high earnings-generating potentials can be acquired and held as medium and long-term investments. This target area includes among others category B office buildings, industrial and logistics properties, but the Company would also be willing to take part in investments of a similar portfolio approach in other business areas. Appeninn Holding has to goal to become a real-estate property holding company that represents traditional, conservative business policy and readily definable asset-based values through the continuous expansion of the Company s real-estate property portfolio. The Company s subsidiaries and the shares of participation at the end of the period: Appeninn-Angel Zrt. (100%) Appeninn-Bp1047 Zrt. (100%) Appeninn E-Office Zrt. (98,63%) Appeninn-Logisztika Zrt. (100%) Appeninn-Solaris Zrt. (100%) BERTEX Zrt. (100%) Curlington Kft. (100%) Szent László Téri Szolgáltató Ház Kft. (100%)

4 Changes in 2016: W-GO 2000 Ltd (60%) On , W-GO 200 Ltd merged into Appeninn E- Office Ltd, and LEHN Consulting Ag. retained a 1/730 part as a minority interest in Appeninn E-Office Ltd. In 2016, Appeninn Investment Ltd and Pontott Ltd have been transferred as contributions in kind to Appeninn Plc (date of registration: ), and then these companies were sold by the parent company on On , Appeninn Plc acquired Appeninn Credit Ltd (financial enterprise), the selling of this participation sale is in progress. 2. Description of the sectoral environment Office market in Budapest Budapest Real Estate Research Forum (BIEF, BRF) (members: CBRE, Colliers International, Cushman & Wakefield, Eston International, JLL and Robertson Hungary) published a summary description of the office market for the fourth quarter of Our Company took this report over as relevant data for the presentation of the sectoral environment. Office market in Budapest During the fourth quarter of 2016, a new office building was opened, thus increasing the size of Budapest's modern office range to 25,400 sq m. The most recent office phase of the Corvin Promenade was built in line with the specific tenant needs of Nokia Networks, as a 100% 'built-to-suit development, under the name of Nokia Skypark. Budapest's entire modern office range currently makes up 3,360,090 sq m, of which 2,695,510 sq m belong to the modern, speculative office area of type 'A' and 'B', whereas 664,580 sq m are privately owned offices. Demand, supply and occupancy rate Following a slight increase in the fourth quarter, the office vacancy rate returned to its downward trajectory; during the last quarter of the year it dropped to 9.5% by 1.4 percentage points, which is the lowest rate so far registered in Budapest. - Similarly to the previous quarters, South Buda continues Demand New demand Occupancy rate to be the most saturated submarket, where the vacancy rate is only 3.7%, while the highest vacancy rate (34.3%) can be measured in the agglomeration.

5 - Gross demand in the fourth quarter of 2016 amounted to 163,610 sq m, i.e. it almost doubled compared to the previous quarter. Within the total demand, contract extensions represented the largest share (one third of the lease volume), while the share of pre-lease agreements was 30%. New agreements represented 28%, while expansions accounted for 9% of the demand. - There was no transfer to ownership during the quarter. tenants, 6 pre-lease agreements and 3 expansions. In contrast to the previous quarters, the highest tenant activity was measured on the Pest Center submarket, with one third of the overall volume. 30% of all the leases were realized in the Váci Street office corridor, while 10% of the demand emerged in South Buda. BRF registered a total of 230 lease agreements during the quarter, with an average area of 711 sq m. 31 agreements were concluded for areas above 1000 sq m: 12 contract extensions, 10 agreements concluded with new The largest transaction of the fourth quarter was a pre-lease agreement concluded for the next office phase of the Corvin Quarter, wherein an IT company will occupy nearly 80% of the Corvin Technology & Science Park building. The second largest transaction of the quarter was a contract extension for an area of 13,780 sq m in the Váci Street office corridor, where the largest new lease agreement was also concluded for an area of 3740 sq m. Net absorption roughly tripled compared to the previous quarter, i.e. to 68,790 sq m, which has been the highest figure in the past five years. Absorption was outstanding on the Pest Center (29,810 sq m) and on the Váci Street office corridor (24,825 sq m) submarkets. While we registered significantly lower absorption volumes on the other sub-markets, for the first time since the third quarter of 2015 none of the submarkets ended up in the negative range. Despite the strong demand in the fourth quarter, the year of 2016 brought a 13% drop compared to the previous year's record volume, but it still proved to be just the second most active year since the crisis. City logistics Distribution of the demand for offices in Q4 of 2016 new tenant expansion contract renewal pre-lease contract (No updated report was made for the fourth quarter of 2016, and therefore we are presenting the report for the third quarter of 2016) In the third quarter of 2016, a new building, Prologis Park Budapest Sziget, a 21,510 square meters project was completed and opened in Szigetszentmiklós. Thus, the speculative industrial property range in the Budapest agglomeration currently makes up 1,909,310 square meters. Industrial property market indicators In the third quarter, the total tenant demand totaled up to 84,570 square meters, which was 9% lower than that of the second quarter of 2016, and 37% higher than the one

6 registered in the same period of the previous year. Much of this demand, i.e. 43% comprised new transactions, the ratio of contract extensions was 28%, while expansions accounted for 16%. Due to the rather short available free warehouse spaces, several major pre-lease agreements were made during the quarter. Their total volume was 11,560 square meters, representing 13% of the total tenant demand. In the third quarter of 2016, BRF registered altogether 31 transactions, from which one exceeded the 10,000 square meter area. The average transaction size was 2728 square meters, which was 38% smaller than the corresponding value registered in the last quarter. 95% of the lease agreements were concluded for areas at logistic parks, for 2961 sq m areas on the average. The average size of leases in city logistics was 1155 square meters. The largest single new contract Distribution of tenant demand in Q3 of 2016 was concluded in the K-Sped 17 building, for an area of 14,870 square meters. The largest prelease agreement was concluded new tenant at BILK, for an area of 5960 expansion square meters, while the longest renewal pre-lease BST extension was made in the Prologis Park Budapest Harbor Park Logistic Park for an area of 6080 square meters. The largest extension was realized by a source: BRF contract for an area of 6850 square meters in the Prologis Park Budapest Gyál building. The vacancy rate currently stands at 8.9%, which is 0.7 percentage points lower than in the previous quarter. Currently, altogether 169,320 square meters of industrial space stands vacant, and only three buildings have unleased areas over 10,000 square meters. Following some decline in the second quarter, net absorption reached a positive value again, a total area of 13,340 square meters were added to the leased units. 3. Goals and strategy Property management office market In line with its strategy, Appeninn Holding fundamentally focuses on such niche market segments where favourably priced assets promising high earning-generating potentials with professional operation can be acquired and held as medium and long-term investments. Primarily, the Group has office complexes in Budapest, but also acquires logistic, commercial

7 properties nation-wide. Through its acquisitions in recent years, Appeninn has been able to broaden its property portfolio. In addition to maintaining the utilization rate of the office properties belonging to the Company's portfolio on a favourable level, Appeninn attributes importance to satisfying the existing demands of tenants and keeping operating efficiency in the center of attention. The favourable locations and the applied leasing policy ensuring outstanding price-to-value ratios gives the Group a steady utilization rate over 95%, which goes well beyond the average in Budapest. The principal expectations in relation to office properties include good location, easy access and beneficial functions these criteria are eminently considered by the Company in its acquisitions. The Group owns the individual real-estate properties via its subsidiaries, and performs operation-related services (accounting, finance, maintenance) in a centralized manner, via the entities belonging to the holding company. To counterbalance the impacts of the economic environment on the tenants, the Company always aspires to continuously control and reduce operating costs, thereby responding to the tenants' cost reduction demands, and consequently the Company does not come under pressure to reduce rental levels, but there remains some room for increasing the amounts of rents even in the current market atmosphere. Property management City Logistics At the end of 2010, the Company made a definite move towards the warehousing and industrial property market, started to expand its portfolio in subsequent steps at a fast pace, thereby creating a massive second holdfast for the holding company beside the office market. The Company's entry into the new segment was implemented with abidance by the core values formulated in the office market: acquisition and management of properties that could be operated with over-the-average utilization rates and levels of earnings offering value to shareholders. In this market segment, Appeninn successfully focused on populating the portfolio with tenants, and pursued effective portfolio management activities towards the optimization of the portfolio structure. 4. Development The company is obliged to develop and extend its property business. The management is determined to develop the efficiency of the Company by investing in new properties. The subsidiaries increase their sold out ratio, continuously increase their good and quality tenant

8 portfolio. The key success factor to the extension is the stabile positive cash-flow and financing activity repayment of capital and interest. 5. Main resources, risk factors and their changes, uncertainties Strengths The Company flexibly adapts itself to special customer demands The Company realizes cost-efficient operation Thoroughly considered property portfolio size and consequential volume-efficient management Maintenance of a coordinated funding and income structure The Company has a proper liquid asset portfolio The Company has well-balanced leverage. Uncertainties Uncertainties relating to the accurate forecasting of utilization rates in new acquisitions Duration of tenant changeover for continuous lease Opportunities 1. The underpriced property market in Hungary is an attractive investment target for foreign investors 2. Acquisition of undervalued properties in the niche market segments 3. The demands of small and medium-sized enterprises as tenants mostly surface in category B 4. Long-term cooperation with liquid companies with steady cash flow when the prime of the small and medium-sized enterprises are acquired 6. Risk factors and mitigation The creation of the portfolio for the "bad bank" (MARK Zrt.) planned to be founded by the National Bank of Hungary (MNB) has the potential to substantially influence the selling parameters of the properties that are currently available in the market. Appeninn Nyrt.'s Treasury function coordinates participation in the financial markets in line with the Company's long-term business interests. Investments in the Hungarian office market can influence pricing indirectly and in the long term.

9 The risks of non-payment or default payment that are generally experienced in the corporate segment have already been managed by the Company by maintaining continuous customer monitoring. Customer monitoring activities are continuously developed by coordinating information flow among operations, energy management, customer management and finance. 90% of Appeninn Nyrt.'s FX-based investment loans are denominated in EUR. The Group is exposed to risks arising from the changes in market and financial conditions. These changes may influence results, the values of the assets and liabilities. The purpose of the management of financial risks is that risks should be continuously mitigated via operating and financing activities. Hereunder, the market risks affecting the Group are described. Extent of risks Rent-related risks The Group establishes consistent, calculable and competitive rents for the tenants. The current amounts of the rents are in line with the environment and quality of the properties. With respect to the present global environment and the supply that is available in the office market of Budapest, however, it is not certain that the current rents and conditions can be sustained in the future. During the short term in the future, the Company foresees a 5 10% downward trend in rental revenues. Foreign exchange risks As in 2013, EUR became the Group s functional currency, foreign exchange risks can arise from HUF- and CHF-denominated credits and liabilities. Appeninn Nyrt. s FX-based investment loans are typically denominated in EUR following the successful restructuring of the credit portfolio during With this move, the Company has taken a major step to harmonize its rental revenues with its financing. Appeninn Nyrt. and the Group headed by the parent company are planning to sustain the well-balanced EUR-based cash flow planning achieved in With the EUR movements, the Group does not face foreign exchange risks. Interest rate risks Interest rate risks represent the risk that the future cash flows of certain assets and liabilities fluctuate as a result of changes in market interest rates. Changes in market interest rates mean exposure for the Group in the case of long-term loans of variable interests and financial leasing liabilities. On the average, the Group pays 3.0% interest on its credits. On its issued interest-bearing bonds, Appeninn Nyrt. pays fixed interests at 7% and 5%. Liquidity risk The Group has the objective to maintain equilibrium between the continuity and flexibility of financing when the volumes of financial reserves and credits are shaped.

10 The management opines that difficulties in liquidity cannot be expected, because revenues safely cover debt services and operating costs. The Company and the consolidated entities under its control fulfill their payment obligations within the respective terms of payment. Crediting risk Crediting risk is the exposure wherein a partner fails to fulfill its payment obligation connected with any financial asset or customer agreement, thereby causing financial loss. The Group is exposed to crediting risks in association with its lease-out and financial operations (including bank deposits and financial investments). In the case of tenant partners: To mitigate crediting risks, the Group requests security deposits or bank guarantees from the tenant as depending on the credit rating performed before the conclusion of the lease contracts, and then continuously monitors receivables from tenants. In the case of bank deposits and financial investments: crediting risks associated with bank deposits and financial investments, the Group handles in line with its conservative investment policy. To mitigate crediting risks, the Group keeps its financial reserves in cash or bank deposits at reputed financial institutions. 7. Key events after the balance sheet date Following the balance sheet date and until the publication of this report, the Company did not see events affecting the reporting period. 8. Quantity- and quality-related indicators of performance measurement Appeninn Holding Nyrt. s revenues from operating and lease-out activities in 2016 were closed at EUR 4,630,116. The net incomes in 2016 were 2, EUR. The operating profit from business performance before interest, taxes, depreciation and financial results amounted to EUR 2,729,000. Compared with the comparative data for the year of 2015, the results of sales transacted by the subsidiaries brought about substantial changes in the composition of the Company's operating profit. The utilization rates of the Company s property range from 80% to 99%, while the changeover times in between terms of rents tend to be minimal. The amounts of the rents achieved by the Company reflected the average of the comparable market data, whereas the rate of variance remained minimal for the individual industrial segments. The capital demands of real-estate property utilization and real-estate property investment were increased by the Company's founders in 2016, and consequently at the closing of the year of 2016 the Company's assets were covered by the Company's equity ratio at a ratio over 40%.

11 The Company s income-generating and profit-increasing ability can be steadily measured with respect to the sizes of rented properties and standard market pricing. Changes in the Company s service expenses follow trends in revenues, the operating costs are stable. In 2016, Appeninn Holding Plc s operating cash flow was EUR 2,400,000, which covered the Company s interests to banks and on bonds, its investment activities and the financial expenditures (interest, loan repayments). 9. Results and outlooks in the period of the annual report The investment policy represented by the Company also reflected in cash flow. The enforcement of market prices with cash flow benefits for the Company forms a component of the Company s business policy, meaning that the Company s management firmly believes that by increasing the turnover rate of capital in addition to the results of real-estate property operations positive results can be achieved provided that credit schemes are kept at the current market conditions. Lease-out operations were implemented via the following affiliated entities belonging to the scope of Appeninn Holding Nyrt. s control: Company Appeninn Vagyonkezelő Holding Nyrt. E-Office Zrt. W-GO 2000 Zrt. Appeninn - BP 1047 Zrt. Bertex Kft. Appeninn Logisztika Zrt. Appeninn Solaris Zrt. Curlington Kft. Szent László Téri Szolgáltató Ház Kft. Core activity Asset management Office lease-out Office lease-out Lease-out of logistic properties Lease-out of logistic properties Lease-out of logistic properties Office lease-out Lease-out of logistic properties Office lease-out Felhévíiz Appen Kft. Office lease-out Appeninn Holding Nyrt. presents and calculates its investments and investment properties with the use of the principles of real valuation. Properties managed by the Company for its lease-out and investment operations, as well as their valuation as of 31 December 2016.

12

13 10. Information on the capital and shares associated with the public listing of securities Description of changes in equity capital, 2016 Details of committed reserves, 2016

14 Issued shares and shareholding rights Issued and kept in circulation, Appeninn shares can be freely traded, as there are no rights granted in the Charter towards the restriction of such circulation. Capital increase in 2016 List and description of owners and Board of Directors 11. Employee benefit plan, share option program The Company does not have active program 12. Articles of Association Appeninn Holding Nyrt. approved the Charter the last time on At its usual places of public disclosure, the Company published its Charter. Procedures, rights set out in the Company's Articles of Association are executed and exercised by disclosing its Articles of Association. The election of the senior officers and the associated process took place as

15 required in the Articles of Association. The Company complied with the regulations relating to the issuance and withdrawal of shares, as specified in the Articles of Association. 13. Corporate management system The Company operates a Board of Directors. The scope of the competences of the Board of Directors is regulated in Section VII of the Charter. Together with its annual report, the Company discloses the document package (as prescribed by the Hungarian accounting standards in paragraph 95/B) describing its responsible corporate management system. The Company undertakes not to deviate from the statutory corporate management system or use further enterprise resource planning systems that would not meet the relevant legal requirements. 14. Places of public disclosure The Company publishes its disclosures and reports at the websites, and - uploads them to the site. 15. Framework for the continuation of the enterprise Appeninn Nyrt. s Treasury function coordinates participation in the financial markets in line with its long-term business interests. Appeninn Nyrt. analyzes the financial risks arising during its operations for the individual businesses separately. The examined risks include market risks (foreign exchange risks, real-value interest risk and pricing risks), as well as crediting risks, payment risks and cash flow interest risks. Appeninn Nyrt. aspires to minimize the impacts of these risks. Appeninn Nyrt. does not enter into financial schemes for speculative purposes. 16. Research and experimental development The Company is not involved in research and development activities. 17. Environmental protection During its operations, the Company does not perform activities that are hazardous or detrimental to the environment. Dangerous substances are not used for operations, either. 18. Other declarations The Management has no information about any kind of ownership restrictions or ownership trading restrictions. The management has published all information relevant or possible influencing the Company s activities outside the normal range of activities. The Management has no information about any kind of loss compensation agreement with management members or employees.

16 19. Senior officers, strategic employees Name / signature right (date of staring position YYYY MM DD ) ifj. Ádámosi György individual ( ) Székely Gábor jointly ( ) Éder Lőrinc jointly ( ) Szabó Balázs jointly ( ) Prutkay Zoltán - jointly ( ) Kovács Attila Gábor - jointly ( l) 20. Changes in the headcount of full-time employees Beginning of the End of the year under At company level year under review 1 review Declaration of liability Declarations prescribed in Appendix 1 to Decree 24/2008 (Aug 15) of the Ministry of Finance relating to Appeninn Nyrt. s (H 1022 Budapest, Bég utca 3-5.) individual annual statements and reports for 2016, compiled pursuant to the Hungarian Accounting Act and the consolidated annual report for 2016 complying with the relevant Hungarian accounting requirements We, the undersigned hereby further represent that the stand alone 2016 report of Appeninn Nyrt. (issuer) has been prepared on the basis of the applicable accounting requirements (Hungarian Accounting Standards)), and to the best of our knowledge the stand alone annual report offers a realistic and reliable view on the assets of the issuer, their obligations, financial standing, as well as profits and losses, whereas the management report for 2016 draws up a reliable picture in relation to the current situation, development and performance of the issuer and the entities involved in the reporting, describes the key risks and factors of uncertainties. Appeninn Plc belongs to the scope of Article 4 of Regulation (EC) No 1606/2002 on the application of international accounting standards, and thus is required to compile its consolidated annual report in line with the international accounting standards announced in the form of a regulation in the Official Journal of the European Union. Budapest, Appeninn Holding Nyrt. Gábor Székely Zoltán Prutkay jointly as the members of the Board of Directors